1.23.2013

A share of a company's profits passed on to the shareholders on a periodic basis. Ordinary dividends are taxed as ordinary income and are reported on Line 9a of the Schedule B of the Form 1040. All dividends are considered ordinary unless they are specifically classified as qualified dividends.

A type of dividend to which capital gains tax rates are applied. These tax rates are usually lower than regular income tax rates. Ordinary dividends that do not qualify for this tax preference are taxed at an individual's normal income tax rate. In order to qualify:

The dividend must have been paid by an American company or a qualifying foreign company.

The dividends are not listed with the IRS as dividends that do not qualify.

Qualified dividends are generally dividends from domestic corporations and certain qualified foreign corporations for which the requisite holding period(s), described below, are satisfied. ... Requisite holding periods: Dividend–paying stock — In order for a dividend you received during the 2012 tax year (1/1/12 – 12/31/12), with respect to a share of stock, to be classified as a qualified dividend, you must have held that share of stock unhedged for at least 61 days out of the 121–day period that began 60 days before the ex–dividend date. For certain preferred stock, the relevant holding period is at least 91 days out of the 181–day period beginning 90 days before the ex–dividend date.

My summary explanation:

Qualified dividends are taxed at a lower rate

Qualification is a function of the ex-dividend date and the length of time one has held the stock.